Sharp Tech with Ben Thompson - China Turmoil and America’s Hidden Superpower, Bing vs. Google Six Months Later, Studios Disrupted Themselves to Invent Broadcast TV

Episode Date: August 22, 2023

The Wall Street Journal’s expansive look at the Chinese economy inspires an analogy for the comparative strength of America, two questions on Microsoft, and some follow-up to last week’s enthusiasm for ad-supported streaming services. At the end: Spotify has a White Noise controversy, and a rejection of calls for branding democracy.

Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing? I'm doing great. The question is, how are you? I've heard rumors of an air conditioning outage, which is not a pleasant experience in Washington, D.C. in August. It's not. However, I'm feeling no pain, you know? I went to the brink. We had an air conditioning outage. It was a tense afternoon in the Sharp household.

but I managed to get a hold of somebody who could come at 6.45 at night and repair the capacitor in my air conditioning. And now we're back up and running, you know. So as far as I'm concerned, it's going to be a great week. That was a great Monday night omen. Well, good. I like the hesitancy with which you pronounce the word capacitor. It definitely showed why you needed to hire someone to come fix it for you. But good, I'm happy for you. Well, we have two programming notes. on the heels of that exciting news. Number one, there will only be one episode this week, and we'll be back with the regularly scheduled two episodes next week. Programming note number two,

if you're not subscribed to Stratory Plus, there has never been a better time to jump on board. Me and Ben Goliver are back in the swing of things for another season of greatest of all talk. Sharp China is returning from hiatus this week. And of course, you get all the writing from, Ben Thompson, Dithering, which is my personal favorite podcast. So Ben, I don't know if you have any thoughts, but dumb and suggested we do a call to action

every now and then. So there you go. So Streckery Plus, a lot of value, daily content. I'm going to be honest. August is such a slow news month. I'm not sure it's the best time to subscribe to Strecry Plus. But I guess I have to lie and say, absolutely, jump on board. Well, jump on board.

The goat is going to be fun. I can promise you that. I got to tell you, though, that's a good segue. A month ago, I came on here and asked you, what the hell happened? I thought summer was supposed to be slow and, you know, this nice sort of laconic news cycle. And there was a lot going on back in June and July. Now I am beginning to see what you mean. There's absolutely nothing going on.

We could have opened with a hot 45 minutes on Elon Musk removing the, removing the ability to block users on X? I mean, maybe Elon Musk is just a plant by the tech media to have something to sort of write about. But no, this is the sort of normal schedule. And it was kind of funny because one of the weirdest things, I mean, I've been doing strategic since 2013. So I kind of have a good sense of the cycles of tech.

And there's a reason why, you know, I always slow down in the summer. It's not just the fact. I mean, obviously the most important thing is I need the chance to sort of recover. I'm usually in the state. See your family. Right. actually, you know, breathe once in a while. But the reality is is that August is always slow.

And one of the weird things about the pandemic was August and the summers in general were insanely busy because no one had anything better to do. Everyone was doing work. And there was like it was a ton of news, a ton of stuff going on. And it does feel like this is the first summer where it's really settled down into sort of a normal news cycle. And which is fine. It's great.

It's kind of a nice sort of return to normal. It's a chance to sort of get goofy to do a sort of a little bit more sporadic release as well as we're doing, which is fine because you should not be listening to a gazillion hours of podcast. You should be outside touching grass. Or touching sand or wherever you may be, you know, get out there and experience the world. And yes, instead of Elon Musk, I will read from the Wall Street Journal. They write, for decades, China powered its economy by investing in factories, skyscrapers,

and roads. The model sparked an extraordinary period of growth that lifted China out of poverty and turned it into a global giant whose export prowess washed across the globe. Now the model is broken. What worked when China was playing ketchup makes less sense now that the country is drowning in debt and running out of things to build. Parts of China are saddled with underused bridges and airports. Millions of apartments are unoccupied. Returns on investment have shown. sharply declined. Signs of trouble extend beyond China's dismal economic data to distant provinces, including Yunnan, in the southwest, which recently said it would spend millions of dollars to build a new COVID-19 quarantine facility, nearly the size of three football fields, despite China having

ended its zero-COVID policy months ago. Other localities are doing the same. With private investment week and exports flagging, officials say they have little choice, but to keep borrowing, and building to stimulate their economies. Economists now believe China is entering an era of much slower growth, made worse by unfavorable demographics and a widening divide with the U.S. and its allies, which is jeopardizing foreign investment and trade. Rather than just a period of economic weakness, this could be the dimming of a long era. Quote, we're witnessing a gear shift in what has been the most dramatic trajectory in economic history, said Adam Tews, a Columbia University history professor who specializes in economic crises.

Now, Ben, earlier today, you said you've got some takes on this article. And I always enjoy your perspective on both Taiwan and the PRC. So what do you think of the recent news out of China? Well, one of the things we're talking about China is there's always a, you know, I've written about this in the past, a danger of everyone is ready for China to sort of fall apart for the economy of problems, XYZ. And, you know, it never seems to end up happening. So I'm not a macroeconomist. I'm not going to make any thing grand pronounces about China.

I'm not on the ground there, although what you do here is sort of certainly not encouraging. But what I thought was interesting about this article, which definitely does reflect sort of the reality that you do here, whether it be from people on the outside looking in at the economic factors or I do have the opportunity in Taiwan to talk to people who do a lot of business in China. Was this bit about, you know, the challenge China faces, this challenge that has faced lots of. countries as they've sort of come up is having to shift from a supply focused economy to a demand focus economy and building up a consumer market that is sort of a sustaining aspect for being sort of a rich country. And there's some interesting asides in this article about China's struggle to do so, about Xi Jinping's a particular sort of ideological opposition to do so. You wouldn't want consumers sort of getting any ideas there.

And, you know, there is certainly a tempting proposition amongst anyone that thinks they know better that, well, if I could just direct everything, right? Sort of central control sort of idea could actually spend money on good things, not on this wasteful sort of capitalist crap. What if we actually spent it on semiconductors or sort of X, Y, Z? And what you sort of see again and again is there is a limit to how far that goes. like the number of things that can be done by a central planner, you end up building a bunch of airports and bridges and railways, and you go to China. It's like, wow, the infrastructure is amazing,

but there is actually a need to build what is necessary and get a return on that investment. Otherwise, you're going to have big problems. We obviously saw this with Japan sort of 20 years ago, 25 years ago. You go to Japan, the infrastructure is still incredible, a lot of which was built sort of 25 years ago, and the whole economy sort of stagnated sort of since then. you know, in contrast to China, Japan got rich before that happened, and China hasn't.

That's obviously sort of huge problems going forward. But the reason why I wanted to bring this up on Sharp Tech, a nominally sort of tech podcast, is I sort of was thinking about this article. And there's a bit about what makes the U.S. economy so incredible is that it is and has been really since World War II. It's the demand center for the world, right? Like the whole reason why China grew so much and got so rich on exports was first and foremost exports to the United States. Now, they obviously export elsewhere. Their exports to Europe are up hugely.

This is a huge problem for Europe because some of the areas of the Chinese economy they're doing well are things like autos, for example. They're looking to be dominant in electric cars, you know, and they're looking to Europe as a huge sort of growth market, which is a sort of inversion where Europe looked at China as a huge growth market. I think there's going to be a lot of huge challenges that we already went through in the U.S. that Europe is sort of going to sort of face going forward. But this bit about the U.S. market, it's a real sense of power and stability and resiliency that is predicated not on supply, but on demand. That seems like the easiest thing to do, just buy more stuff. It's harder to build bridges.

It's harder to build airports. But the reality is actually the opposite. What is actually hard, what is actually hard. what is actually long-lasting, what is actually resilient, is a consistent willingness and ability to buy stuff. And again, we can have like a moral discussion about like materialism and all those sorts of things that sort of go into it. But I just thought it was striking that this is sort of, you know, the U.S. is true superpower. And the analogy that occurred to me is the U.S. is like the Internet company of the world. And, you know, one of the things that I've talked about is what makes Google so powerful.

powerful? What makes Facebook so powerful? What makes this category of companies I saw aggregators so powerful? It's that they aggregate demand. It's all about demand. The big thing about the internet is you don't have to control supply, you control demand, and that is what actually gives you power in the market. And if you step back and you sort of like look sort of broadly at the reality of the world over the last century, the U.S. controls demand for basically the entire world. And that is such an unbelievably powerful and resilient position that, again, if you sort of squint, it's not dissimilar to why it is that these big internet companies are so powerful. That seems easy, right? Anyone can go to Google. It'll go to Facebook. Anyone go to competitor. It's only a click

away. But actually, you know, marshalling demand in the aggregate of all these not top-down directed decisions, but individual selected decisions into this sort of thing. Like, like, this is the The challenge that all these antitrust crusaders have is they're trying to push on a string. They're trying to change consumer behavior. It's not about a monopoly. It's not about who has wires in the ground. It's about who controls demand. And the U.S. is almost the biggest possible example of how powerful that can be.

Yeah. Well, that's a terrific take. And it dovetails with the way I've been reading some of the economic news coming out of China for the last couple months. Because on Sharp China, we've been reporting on this basically all summer. and every week there's a new story about some sector that's in complete disarray over there and problems that don't have easy solutions. Like top to bottom, there are no obvious answers. And the Wall Street Journal, they write,

she and some of his lieutenants remain suspicious of U.S. style consumption, which they see as wasteful at a time when China's focus should be on bolstering its industrial capabilities and girding for potential conflict with the West. people with knowledge of Beijing's decision-making say. The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority without generating the kind of growth Beijing desires. And one aspect of the China story that has been really interesting is,

it seems like what China's actually grappling with is the limits of what the state can control. Because there's certainly the ideological, aspect of it. And she, I sure does think that U.S. style consumption makes for laziness and all sorts of other negative behaviors. But at the same time, you can try to engineer all these different outcomes as a central government, but the state can't force consumers to want to spend money. They can't force people to buy real estate. They can't force people to have extra children and try to reverse the birth rate. And, you know, you can't just, invent hundreds of thousands of white-collar jobs for young college grads after throwing your

weight behind industrialization for the last 30 years. And so watching all of these bills come due at once and watching the rest of the world experience this sort of awakening has been really, really interesting. And you're right, the U.S. is like the complete opposite end of the spectrum where there's demand for decades, for eons in this country. There's demand for basically everything. right. My friend Parker Thompson wrote it wrote a tweet today where he had a chestnut picker-upper, right? Where, you know, it's like this sort of, it's kind of like those tennis ball picker-uppers, but you like roll it along your lawn and it like scoops it up. He's like, what? What? Chestnuts? Yeah, I think that's what. I think that's what it was. I don't know. I have a similar problem with Alaskol thing walnuts or whatever. And it's like, you know what? No bureaucrat is going to say, go make a chestnut picker-upper. Just get out there and pick it up yourself, right? But a lot of Americans will buy one. God damn it. Well, and it's, it's funny because this is like a lesson we have to learn again and again and again, right? Like, and there's, it's so easy, I think, particularly for, you know, smart people, it's so easy to see dumb things and see bad decisions and stuff that seems like a waste without appreciating the extent to which it is the, this broad based demand that pulls out production, that pulls out innovation, right?

I mean, one of the great insights of Robert Noyes, the founder of Intel, was he very purposely avoided taking big contracts from the Department of Defense. The Department of Defense was the big sort of buyer of technology in the early days for sort of obvious reasons. And one of his great insights was the actual way to get the scale necessary to make this work. We've talked about how scale is so important in tech and things like semiconductors is you have to get the consumer. market. And one of the realizations that the Defense Department had in the 80s was actually we need to get out of proprietary technology. We need to figure out how to leverage general purpose technology and apply that because the power of the market to pull forward innovation, to provide the incentives to make it faster and smaller and all that sort of thing is so

powerful. And it's just, it's one of those things where you, you look at these incredibly complex systems, and it's easy to say, we should be spending more money on XYZ. We should be doing more on semiconductors. We should be doing like on sourcing this sort of, you know, manufacturing or whatever it might be. And, and this is also, not to say that there aren't real national security concerns around things like semiconductors. I was going to say, yeah, the market and consumer demand can't really account for considerations like a war scenario or the risk that that puts the entire economy at. For sure.

But there is a bit about there, sometimes there almost like a distrust of market responses. Like is it actually going to happen. And I think one of the things you see with China is, you know, when you increase even slightly, you go back to the Trump tariffs, right? And, you know, you could have the whole economic debate about the efficiency or inefficiency of tariffs or whatever it might be. It has real consequences on the ground. And it turns out if you're just producing stuff, it can move.

And it does move. what you can't reproduce, what you can't sort of generate from nothing is demand. And I think it's one of those things that just makes people uncomfortable because you're, you know, the invisible hand, right? You're trusting in this amorphous thing. And I don't know, I just, that bit about time, again, I see the analogy, of course, I think about internet companies all the time. I think about technology all the time.

There is a precedent that we can look at for why controlling demand is so much more powerful than controlling supply in the long run. And that is sort of the United States itself. Right. And the inverse in China is there are fewer feedback mechanisms that then lead to these like crazy distortions over time to where now there's a real estate bubble that's just like the biggest bubble the world has ever seen. No matter what China wants to do, there aren't that many solutions they can even employ at this point. Well, I mean, one of the biggest criticisms of the of the U.S. action against Chinese semiconductors is that it actually finally gave China the feedback they needed

to go about approaching semiconductors the right way, which is to start at the bottom and actually work your way down the warning curve. Had we never interfered or going back to Huawei and ZTE, but also the recent chip ban, China would still be trying to basically copy TSM, where we're going to import a bunch of equipment and look, we make cutting-edge chips, and they would actually have this massive vulnerability

is they don't actually know how to make any of the component pieces of going into making a chip, right? And so that's actually an example where probably the biggest critique of the U.S. approach here is even for a sort of like a communist government without sort of the feedback mechanisms, that shock was so large it was a feedback mechanism such that maybe they're finally going to approach this industry in a rational way, which again is sort of a problem.

you know, from a national security perspective, but what it is is an affirmation to your point of the importance of feedback mechanisms. And markets have that in spades. Like you make something, you make a picker-upper of stuff in your yard. It doesn't sell. You go out of business. Any kind of nuts, walnuts, yeah. And the market will let you know how you're doing. Okay, well, that was a terrific zag.

I don't know whether you have any other thoughts on the next six to 12 months in China, but I enjoy that as a. curveball. It's a long-winded way to back up your subscribe to the Streckery bundle and listen to Sharp China to get more bits about this. But I don't know. I thought that Washington article was really good. We'll have a link in the show notes. And just this bit about the power of demand, it's not just a tech thing.

It's sort of a broader economic principle. And that just really struck me. Right. It's going to be very interesting to see how the CCP goes about stimulating consumer demand. and they may not even be interested in it. No, but that's the whole point. They don't trust it. They don't want to, right?

Like, I mean, at some point, people have to, I mean, now we're veering into more sort of China take territory. There is remains a resistance. And there has been for the last decade. And it's starting to go away broadly of refusal to take Xi Jinping at his word, which is that he is a Marxist ideology, right? And like at some point, it's like, he keeps acting like it. Like, yes, previous Chinese leaders were fairly pragmatic and realized they needed these

market mechanisms. There's no evidence that's happening now. Why do you think it's going to change overnight? Right. And she believes that the use of the stimulus canon over the last 15 years or so ultimately left China in a weaker spot. And he does not want to continue the problem. Right, which is also a fair point, right? I mean, I think the challenge with sort of stimulus and government sort of intervention in markets is it usually does lead to bubbles. And if every time the bubble is about to pop, then you sort of paper over it. Kick it down the road, yeah. Bubbles do pop.

Either now or later, and the later it is, the more painful it's going to be. But again, I'll leave that to sort of the macroeconomist and the China experts and Sharp Tech. But in the long run, demand wins. And I don't know, I just think that that's worth keeping in mind. There you go. Well, we'll continue to keep you covered on Sharp China. It is a running joke on Sharp China. People are predicting the downfall of the Chinese system every six months or so and have been doing that for 25 years.

So I'm sure there will be more resilience than the doomsday people expect right now. But it's going to be a thorny process. So we'll see how it plays out. Keep you covered on Stratecre Plus. Subscribe now. And to shift gears entirely to Microsoft questions for you, Ben. Bryson says, a few months ago, with the launch of Bing Chat and Satya taking on Sundar, many people, myself included, got very bullish on Microsoft's prospects to take market share in search.

Ben also wrote about this a few times, including after Google's Bad Bard announcement. I saw an announcement last week that Microsoft was releasing Bing Chat to non-edge browsers or devices, but with knee-capped features like shorter message length and fewer messages per chat. For a while, you could rationalize BingChat only being on edge because of some technical hurdles or edge making it easier to test slash release quickly, but now it seems like a considered decision to continue to bundle the two. This works great in B2B, and I'm still bullish on Microsoft and the B2B AI space, but it seems to me like a misunderstanding of the consumer space.

Friction is key in consumer, and if I have to change which browser I use to get a slightly better search experience, I have a hard time seeing this working out for Microsoft. Is this a sign that Microsoft is transferring the wrong lessons from its office business or has some internal politics or has some internal politics that will prevent them from making truly great consumer products? Should I give up on Microsoft ever being more than just a B to B behem So first and foremost, thank you, Bryson, for giving us all an opportunity to remember the month of Bing bullishness back in February. No, no, no, no, no, no. I was never bullish on Bing. But some people were. Some people were unironically bullish on Bing's prospects to take market share from Google, which was stupid at the time and is stupid now. It's not stupid per se. I mean, you know, there remains an open question about the, long-term cost impacts on Google of AI, just of providing it, of diminishing their economic model. I think that my long-term concern relative to Google is a shift in behavior to non-search

engine experiences or new type of experience, something like OpenAI with, you know, sort of the plug-ins. And again, you know, we have a, we've discussed, you know, what that trajectory is there. But Bing in particular, I don't think I've ever been super bullish on because it's a bad product. I mean, the first and foremost, like the search isn't that good. And that's a limitation of open AI, by the way, because when they fall back to the web, it's also using Bing. And, you know, my take has been that Microsoft should not bother, you know, give up on the consumer space, focus on the API bit. And Open AI should sort of not focus on the API bit, should focus on sort of the consumer space.

again, both those takes might be wrong, but to sort of Bryson's point, I personally, long ago gave up on Microsoft being a consumer company or not gave up on it. That's been my take from the beginning, having worked at Microsoft from sort of day one of chicheree, my argument has been that the only reason they were ever a consumer company is because of the network effects from Windows being dominant in the workplace. and that sort of spilling over into the home. And the moment that new devices came along and new paradigms came along and that network effect didn't matter, Microsoft was helpless. The Zoom was a flop, the Windows phone didn't make any sense. And I was pretty vehemently sort of opposed to both for that reason. And that's okay. There's a bit where what is important at being good at sort of enterprise sales.

And it's not necessarily having the best user-facing implementation of a product because there's a couple of things going on. Number one, the buyer and the user are often different, right? Can I ask you something? Is that code for it's not necessarily having good products? I think you said the best user-facing interface for the product? Or like, are you just saying it's not necessarily making products that users enjoy? What defines what makes a good product differs according to the context and differs according to what it is? What everyone focuses on is the user interface, the actual like, like what you interact with. And Everyone, and this is a big problem in Silicon Valley, everyone is so puzzled when a product that seems to have a better user interface gets its rear end kicked in the market, right, by Microsoft or buy an Oracle or buy an SAP or whatever it might be, because there's lots of other stuff that goes into it.

So one of the factors, a very famous factor is the buyer is not the user. When it comes to a large enterprise, there is someone making a centralized buying decision and the people at the end of the chain have to use what they're given, right? And there was this bit about when SaaS first started, like, oh, now individual teams can buy their own product, like a team leader can just sign up for Slack for his internal team. And that was fine as far as it went. It inspired a lot of trial. But at the end of the day, a company is going to standardize on something. And the factors that go into that could be things like Dropbox, for example, is a great example. Fantastic sort of user experience was so much better than SharePoint or you might want to use.

but Dropbox was engineered from the beginning to be a personal use product. And so they had this huge time period where they realize users aren't going to pay enough for this product at scale for us to justify our valuation. We have to be a business product. Businesses will pay, but businesses care about things like compliance and like fine grain control of files and like sort of records of what happened to every single thing because they have to keep track of everything. and our product is not built at all to sort of handle this. And so they had this period where they were just sort of dead in the water because they had to go back and rebuild their entire back end to actually accommodate business use cases, all of which had nothing to do with the UI, the actual interfacing with the experience,

but hugely mattered as far as selling to business. And so this is a reason why enterprise companies and consumer companies are often so different. They have very sort of different concerns. They often have very different modernization models and all those sorts of things that go into it. And Microsoft is good at all that stuff. They're good at all the compliance stuff. Teams is a great example. Terrible app as far as the internet interface goes.

Like chatting unit is a pain. But there's a bit where you go to Teams and you can have little apps. Like we use a little app for our editing workflow. And there's different, like we don't have to like send messages back and forth. There's a little like we made this app ourselves and sort of no code sort of thing where you put in every person who has their role, puts it in, does a checkbox, hands it off the next person, right? We could spin that up and get it working easily with the UI. You could do it in Slack now to a bit, but it is harder to do.

And it didn't integrate with all your other parts of your business. Microsoft does that stuff in its sleep. All this stuff sort of works together, kind of, right? But the kind of is what everyone focuses on and misses the fact that for a small business like Stratory or even scaling up to even larger businesses, the fact that it all kind it works, there's kind of one throat to choke and they have a huge sort of sales force and people you can go to in a huge ecosystem to support you. That's what actually sells stuff. That's what Microsoft is good at. There's or for example, say like, say we wrote a program, like an actual

program and Structry was started in like 1992, right? And so we have this program we wrote 1999. It's business essential. It's running on like the Wyn 32 API from Wayback Wynn. That program will run on your Windows computer today, right? It's like a 30-year-old program, right? You try doing that with any Apple application, right? You can barely get something to be supported for like 18 months. That's part and parcel of Apple being a consumer company. They're on the cutting edge. They will cut off the cruft because the croft gets in the way of a better user experience and, or particularly in a user interface perspective. And that matters when the buyer is the user. In the consumer market, the buyer is the user. So you have to delight them.

They have to be in, that's right. And so they're just fundamentally different markets. And so I'm in aately skeptical of any company that thinks they can serve both. Because the reality is what goes into building a great product is so different. The dynamics of the market are so different. And you see this with Microsoft. Like by and large, they are a enterprise company. And I think that drives them a little crazy.

It bothers them they don't have the consumer product. And so this AI stuff comes along. Like Bing's still out there. we're going to finally make a go of it. Right. I mean, Sondi, he went on this media tour talking off a big game about going after Google and no greater testament to their cluelessness in the consumer space than they try to relaunch Bing and keep the name of this infamously irrelevant product that we've all mocked for a decade.

They sort of renamed it, yeah. Unbelievable. Yeah. No, I was curious. I was going to do a little Bill Simmons. Are we sure Microsoft is good? Or are they just sort of capitalizing on corporate inertia and making things convenient and a little bit more affordable by bundling a bunch? It could be both.

Look, it could be both. I think of Microsoft as this shining American success story, which they are. And particularly the way Microsoft has been able to reinvent itself after Windows sort of faded. from the forefront is really, really impressive. But at the same time, I find myself using Microsoft products, and I mentioned this a couple weeks ago, and it's like, this doesn't work as well as it should, considering how dominant Microsoft is. It's not like an Apple where everything Apple makes.

I'm like, okay, yeah, it does make sense why they're the most successful company on Earth. Microsoft, as the second most successful company on Earth, has a lot of head scratching products that are a bit frustrating. I like you to try to deflect the fact that you're the biggest Microsoft fanboy, and I'm having to look at a word document right now for this right now because you insist on it. And it's a crappy experience, isn't it? All right. Well, one more Microsoft question.

William says, on a recent episode, you discussed Microsoft's plans to offer AI co-pilots for $30 per user per month. The question posed by Andrew was along the lines of whether companies would be willing to pay this much. And Ben's response was along the lines of the beauty of SaaS is that companies don't have to keep paying for it if it isn't worth it. I was surprised that neither of you spent as much time contextualizing whether it is worth it. As I see it, the median salary in the U.S. is about 70K. After payroll taxes and benefits, that's more like 90K to 100K in costs per employee, meaning that all the co-pilots need to do to break even for companies is increased productivity by 0.5%. This is too much math for a podcast, just for the record.

But William continues and says, I will be more surprised if companies don't sign up and suspect Microsoft will in fact be able to raise prices regularly for some time. Put another way, if using AI bought you an extra few hours of grass touching time each month, how much would you be willing to pay for it? Ben, what do you think of all this? Well, I have two meta responses before I actually respond to the question. Number one, I assume I said it would be worth it. That's why companies would pay.

I'm not sure he characterized my response accurately. Number two, didn't we have a discussion about the, I'm surprised you didn't say XYZ. We are human and valuable and will make many mistakes. So just drop the take about why we're wrong. You don't have to say you're surprised XYZ. Just tell us. You suck. You missed it.

Number three, yeah, of course. Of course it's worth it. That was kind of the broader point is they will charge what it's worth. And yeah, I think they do have an opportunity to raise prices, like in the long run, if it actually does sort of have a meaningful impact. And they have. Like they've raised prices on office over time. They'll raise prices on this over time. And that's okay.

If you make a company money, this is one of the beauties of the enterprise market is there's people whose literal job is to figure out for a company, like what benefit XYZ product has, how much money it saves them, and to make this sort of rational decision to buy or not buy sort of a product that fixes their problem. And this goes back to the, you know, we talked about Dropbox before. Dropbox is a, is a great product. I think everyone should pay for it, but most consumers won't, right? Consumers don't like, especially software stuff, it's hard. for people to wrap their heads around paying for things. That's why they'll buy a $1,000 iPhone and complain about spending $10 on an app or whatever it might be, right? There's just a,

it's hard for customers, especially for something that's intangible like software, they're not buying a physical product. It's hard for them to sort of come to a decision to buy it. It's kind of more of an emotional decision. Enterprises don't work that way. The whole point is they're very rational. And that is why the products are different. That's why enterprise products famously are all about having like five gazillion features because there's there's you never know what business is going to use right and i'm using rational fairly loosely here right like because they're not saying it's definitely irrational to have a list of pros and cons and make a decision i think there's a bit where bits about the user experience and the delight and how you feel when using something do matter

but they don't go on a spreadsheet and they tend to not be considered as much in sort of like business sort of decisions that's why microsoft doesn't focus on it there's no incentive to do it when it comes to consumer though, just because it's cool and it's fun, that's a reason to buy, right? And so the incentives that puts on the business of what to build and develop sort of matter as well. Now, in this case of AI, yeah, companies are going to be tracking this. They're going to see who's using it, how much you're using it, what they get done, and will make sort of decisions appropriately. And yeah, it seems a pretty clear application.

I suspect it's going to be successful. And to go back to the initial email, of course, Microsoft. I should be charging for it. It's not a sign of desperation that they're not. It's a sign of opportunity. Yeah, well, I mean, Williams absolutely right. I'm sure lots of companies will sign up. My wife is in consulting and said that the only new projects that anyone's willing to spend money on these days are AI related and businesses spend on all types of dumb products and services. This might actually be useful. So lots of people are going to take the plunge and see what the use cases actually turn out to be. We did to get an interesting bit of feedback. Someone was on a project and said they were about

to launch. And they realized that the problem is this goes, people use their email for personal stuff like, like, like doctor's appointments and things like that. They're like, we almost launched a massive HIPAA violation of like all this content being in there. So there's definitely going to be things to work out to sort of work through about how this works. But yeah, like to William's point, it doesn't take much to pay for itself. There's going to be a big motivation to see if you can uncover that and figure that out. And, you know, to our initial point in, sort of the podcast, like that drive is going to spur innovation and someone's going to figure out how to do it. It's going to be sort of quote unquote best practices. It's going to filter out

through the economy. And, you know, I'm basically seeing the stars to start being an anthem at this point. Right. Well, I am curious to see how it plays out. because the co-pilot question, A, you're right, the inability to distinguish between company data and personally identifying information and privileged information and stuff like that. That's a tough nut to crack. I'm sure that Microsoft will come up with some sort of fix. Also, the concept of doubling the monthly cost of your bundle to add a product that still doesn't have a clear use case.

That's why I mentioned the question a couple weeks ago. It seems pretty audacious to me while I grant that businesses will sign up regardless just on faith because they're willing to spend money and throw money at anything AI related right now. They would do pilot projects. They will do like, you know, again, Microsoft has a big sales team. They will have people to talk to. They'll cut them a deal. Say, oh, I work with this team for sort of, you know, no charge for a year. Let's see if it works.

And if it makes sense. Like this is the the beauty in this case of sort of the enterprise market is. there's everything can sort of be negotiated and figured out. Yeah. And it's either going to work or it's not in the long run and we will see it in Microsoft results in the long run. And I, but I think it's totally reasonable to be optimistic about the possibilities. Oh, yeah, absolutely.

And enterprise consumers are going to be the ones who ultimately determine what the use cases are for this product. And that's going to be interesting to watch from afar here. Right. There will be some, the consumer market will develop differently, right? I mean, I think the one AI company that I really love to know more about, but it's a private company is like the sort of, I think like character AI. Like I did talk to the rep, what founder and CEO, which is broadly the same. But by all accounts are still doing sort of bonkers business, this idea, you know, character AI where you have like a companion that you have an ongoing sort of conversation with and and all those sorts of things.

Very different than an enterprise use case where the idea is not to have you wasting your time talking to someone. But it's going to be a different market. And I think that if the bulk case for AI generally is not that it's a short-term sort of product like Dropbox, right, like file sharing, right? Great, you know, a great product, great addition. Like I was one of the very early people to Dropbox that solved a real sort of pain point back in the day, but that it is more of like a paradigm shift of the way things are done and operate. And in that case, it almost is, to the extent that's true, it almost means it's going to take longer to see the impact because the idea is you're actually reworking flows. You're reworking how stuff is done. And the other thing is a lot of it might be internal.

I mean, there's a lot of optimism around like Palantir, for example, like their stocks been up like crazy this year because their whole thing is we're going to do sort of internal stuff, internal data, internal AI. So you're not sharing your data sort of broadly. and it's one of those things where we might only fully pick out the effects through financial results as opposed to sort of having obvious things in our faces like Bing succeeding or not. Yeah, well, we shall see. I do not think that Bing is going to succeed at any point in our lifetimes. But co-pilot might. We'll see how companies use copilot over the next couple of years as Microsoft rolls it out.

two good counterpoints to our recent enthusiasm over free ad-supported streaming services. Sean says ESPN already has a very large and extensive advertising business as evidenced by the hours of commercials that are already part of NFL broadcasts. How will their OTT offering come even close to maintaining what are substantial current advertising revenue numbers? This isn't like Disney Plus and Netflix, which were entirely ad-free to begin with. Second, Andrew and Ben talk about a free tier with massive distribution that is ad-supported. Sounds like you guys are broadcast bulls. Then he hit us with a winking emoji. Why would a direct-to-consumer streaming offering do better than the free broadcasts we already have?

As you mentioned, with Disney's lack of tech chops, I can't imagine them being good enough at ad-targeting to get a significant CPM boost. I think the overwhelmingly likely outcome is Disney and Company makes streaming dimes to cable bundle dollars. And then Spike says, it's not that I think you're underselling it, as you did mention it in the ESPNOTT discussion, but I think it's an enormous deal that essentially these networks, when they're low price or free with an ad model, are only paid on performance. It's such a massive shift like basketball players paid only on their stats.

It's a huge reality check. Even subscription with no ads can be vibes based. So, Ben, what do you think? I mean, I've been writing about and complaining about the fact that these companies are insane for throwing away their bundles in favor of streaming things. So I don't know why Sean thinks he's coming from the top rope and saying, man, why are you so bullish on streaming? Broadcasting is a much better business. Thank you, Sean. I agree.

I've been saying that for the last 10 years. My users are grumpy at these questions here. But I mean, with the advertising point specifically, so there's a bit where there is an entire advertising ecosystem that is predicated on TV. I mean, I wrote an article years ago about how. Why is it that TV advertising still makes so much money when everyone's going to streaming? And the whole point is TV advertising is tied into. Like, think about who advertises. Who are the biggest advertisers?

Telecom companies, car companies, big box retailers, CPG companies like Unilever or PNG. All these grew up together, right? The idea is you're in your house in the suburbs. You're watching the game. You see a commercial for, you know, deodorant. or whatever it might be, you get in your car, you drive to a big box retailer, you're maybe on your phone the whole time,

you go in, you go to the pharmacy section, and whatever is there on the N-cap, you buy and you pick up, and you put in your car, you're not even sure why you picked it out, you had some sort of positive association with it, you get in your cart and you go home, and all this is sort of like mass market products

that are generally acceptable, but they have a lowest common denominator aspect to them. You have this bit about these CPG companies making the exact same product with 10 different labels on them and like pretending like they're totally different, right? Like, you know, I have dove on one hand and axe on the other. I think they're made by the same company or something like those lies, right? And that's just how the world has worked for these companies. And you still have all these companies that are predicated on this world that are not going to shift to this sort of niche-based e-commerce, send everyone their own customized sort of thing. bit. They need to advertise. That's how their business works. That's why TV advertising, despite

all the losses, despite the declining viewership, still made so much money for so long because you had all these companies that had nowhere else to go. And if streaming, if sports goes away from the bundle and goes over the top, it's going to get advertising. This like, like, again, I am, I am one of the biggest critics of the abandonment of the bundle. for streaming. But at the same time, you can overstate your case, right? Like the P&Gs of the world, the car companies of the world, the telecoms of the world, they're not going to make it up. Like for these sort of companies that have mass market sort of products, they're not the Facebook drivers, right? Well, I've talked about the context of Facebook back in the day when there

was sort of the boycott against Facebook by all these big companies, right? And I wrote the time, it's going to be immaterial. It's not going to matter because that's not what actually drives Facebook's business. What actually drives Facebook's business is, actual small things that are niche focus that leverage the capability of Facebook to pick out sort of the exact customer for your product and you can you can advertise cost effectively because you know you're reaching the right product. These companies are not built for that. They're not built that way. They are built for mass market general sort of like, look, at the end of the day, how customized you need your deodorant to be, right? They're just sort of reach sort of that mass thing.

And for them, advertising on Facebook is prohibitively expensive. Now, they do advertise on Facebook. They try to figure it out, but by and large, TV is actually better for them. It's more efficient. The scale works better. TV has a very high barrier to entry because, like, the minimum buy, the minimum amount you need to spend is pretty large and it's fairly untargeted. But if you have a fairly untargeted product that the whole point is to sell at huge volumes,

TV is great. It's a great medium for what you want to do. And those companies and those products are they, now all this is tied together. They may be fading. They may go away. We might end up in a world of purely customized products for everyone. But for the intervening time, just as they sustain TV for far longer than it seems they should have, they will sustain these sort of services.

This is what YouTube is going after. This is the products that they want. This is the opportunity that Netflix sees that Disney absolutely sees for advertising. So this idea that ESPN, just because it's streaming is going to have no ads, it doesn't make any sense. That advertising is going to sort of go somewhere and it's going to go to sports. Like sports remains compelling for the reasons it's sort of always been compelling. So yes, I am a broadcast bull, but you have to deal with the reality.

And the reality is people aren't signing up for cable. They're cutting the court. It's gone. Yes, you can put an antenna off. That was going to be my question. So number one, I could use some customized deodorant, particularly on a day like today when I've been sweating it out with no. AC, some industrial strength deodorant would have been nice. Number two, though, to keep it with bathroom products, is this a case where you can't put the toothpaste back in the tube as far as

the unbundling is concerned? How long were you saying that? I was ranted for a long time, where you just sort of like, just like you had your gun cocked. You're like, drop this one. That was spur of the moment. Spur the moment, I promise. So, but my question is, is that what's happening here where obviously this isn't the optimal decision in a vacuum, but we're not in a vacuum. Everybody's already bleeding from cable to streaming. And given that reality, someone like Bob Eiger has to be realistic about what the future looks like here over the next 10 or 20 years. Right. Absolutely. And like broadcast remains compelling. And, and, you know, because yeah, Sean is right. Like, this is going to hurt and it's going to be painful and it's not ideal. But I'm not sure there's

That's sort of my annoyance at the question. Like, let me focus on what thing you said and ignore your last 10 years of talking about what a stupid idea this all is and how great the TV bundle is. But the reality is, is choices were made that were made, you know, rates were jacked up, content was pulled. People did realize, like, what's the point if everything I want is somewhere else? And the only resubscribe is sports wherever might be. At the end of the day, ESPN did not succeed because of people who watch sports. It made so much money because all the people that didn't watch sports that were paying for ESPN. Those people are all gone.

So those people are all gone. So you're going to have to just charge the sports watchers. And maybe that's going to end up being sort of over the top. It's going to be the best way to do it. Iger seems convinced that's the case. And I think there is a cogent case here that in the long run, yes, it's going to be painful. But if you want to actually build a growth business again and not retreat to just being the Disney sort of IP portfolio, if you want to actually have a meaningful business,

the route is advertising and trying to shepherd. Like Microsoft, a big part of Microsoft success in the cloud was not that they were necessarily the better product per se, but they were sort of shifting to the cloud along with their customer base. So if you had a big Microsoft installation on premise and you wanted to go to the cloud, you could rewrite everything for AWS

or you could sort of like have Microsoft holds your hand and we're all going to sort of go get through this together. And that was honestly a huge part. of the Microsoft sort of success story of the last decade was them muddling along with their customers into the cloud and then sort of getting up to speed and having competitive products and now the promise

of AI is they actually have a meaningful reason for people to go to Azure beyond the fact they've been on Azure altogether, right? That's what's always been missing is a reason to go there as opposed to just continue what you have. In this case, that advertising is going to go somewhere and Iger and Disney seem determined to capture it

And I think that makes, I think that makes sort of a lot of sense. Some people could get antennas. They could get it. But the reality is, is that's a lot of friction. People don't do it. There are entities like the NFL and the Big Ten that are doubling down on broadcast. And I think that makes a lot of sense for them to do it. But broadcast is not going to, you're not going to get the scale that you need if you're going to build the sort of advertising business that I suspect that Disney sort of wants to build.

Now, to Spikes point, this is a very. very big issue with the whole sort of free layer, right? Is if people, if people, you know, if people aren't watching, your ads aren't going to make money. And, and there's a bit about the more, the less, the more transparency, I should say, the more numbers you have, the more difficult it is in many respects to do all sorts of things. We just on dithering, we're recorded with John. He's ranting and raving about the show that he, that he was watching that is, that is canceled.

It's like, that's sort of the reality. you don't get the, like, well, maybe it'll make money in syndication. May it'll make money on DVD. It's like either makes money or it doesn't. It sinks or it swims. And that's going to be a harsh reality for Hollywood in general, which is. For everyone, yeah. Yeah, I mean, because we see it on the internet.

Newspapers had to sink or swim. They almost all sunk, right? Like, this goes back to the whole Taylor Swift thing. The whole reason why she's a huge deal is because there are no other big deals because everyone else is just so, like, this fracturing of culture to have some that is a unifying thing. And my guess is the reason why Disney wants to hold on to ESPN is a sense that this can still be a totem and anchor in this new reality.

People are always going to want to watch sports. Now, if you want to really ask questions, like, are they? Right? Like sports. Yeah. And how will new fans emerge? Yeah. Right.

Exactly. That's the real existential question. And I do appreciate the sort of broader view of all this. where essentially what we're advocating for is a new version of broadcast TV with these ad-supported free streaming services. And that looks pretty illogical from a thousand-foot view. But I think what you're saying, and I guess what I'll say is that what was actually really illogical were these studios holding everyone's hand and helping them change consumer behavior and consumer expectations. Right, exactly. To where now they want to consume stuff on streaming as opposed to over linear TV.

And it's a worst deal for everybody. If we were still in a world where all the new content came out on in movies first or on TV first. And then it was like on Netflix like a year later. Right. I think I mean, Hulu I think was another mistake. Like what makes stuff available to people the next day? Well, then why should they subscribe to cable? Right.

Like I don't need FX. If it's going to be a, if you're releasing the entire season on Hulu at once at the beginning of the season, why am I subscribed to FX? Right. And I think, you know, I think there was a bit about, and Netflix just had way bigger multiples. And everyone's like, I should, that's, like, it's my content. I should be making that money. And the other bit was a sort of coordination problem, right? And this sort of gets to, you know, the challenges that a free market economy can have is everyone's free to make their own decisions.

And if, if all your other competitors are putting their stuff on streaming next day, or are devaluing your channels. If you're the one that's trying to hold on, you're suffering the casualties without chasing any perceived upside. And the reality is, is once it was gone, it was gone. The whole bit about the cable bit

is it was an accident of history. It comes back to little towns in Pennsylvania, couldn't get the TV broadcasts. They put a thing on a mountain and ran a cable to their houses. It's like, oh, this is actually pretty great. Then Ted Turner's like, imagine if I had satellite dishes

and I could reach all these little towns over the world. And like so many bundles are like that, particularly the most powerful ones. Because it doesn't make rational sense for an individual actor when it's small to join. But when it's large, you actually, everyone makes more money. It's better for everyone. And the problem with having deserted that and having destroyed that value is, yeah, the toothpaste is out of the tube. You can't put it back in. So given that, what can you do?

That's the reality that Disney is in, that all these sort of networks are in. At that point, you just wash your hand. of it, you know, move on to the next one. That's what Disney is doing here. Keeping the bathroom analogies going. From Ashley Carman at Bloomberg, we'll close with this. As of January, according to an internal document Bloomberg viewed, white noise and ambient podcasts accounted for three million daily consumption hours on the platform, inadvertently boosted by Spotify's own algorithmic push for talk content versus music. One spot, Spotify realized how much attention was going to White Noise Podcasts, the company considered removing

these shows from the talk feed and prohibiting future uploads while redirecting the audience towards comparable programming that was more economical for Spotify. Doing so, according to the internal document, would boost Spotify's annual gross profit by 35 million euros or 38 million dollars. The proposal in question did not come to fruition. We continue to have White Noise Podcasts on our platform, a Spotify spokesperson responded via email. Still, some odd events have occurred. One Reddit thread documents a time when White Noise Podcasts, quote, vanished from their account. Other users joined the thread saying they saw the same issue.

One white noise podcaster, who asked to remain anonymous because they didn't want to draw attention to their show, told me they've seen their episodes go missing on the platform twice this year. The first time, the missing episode problem lasted around three weeks and cost them an average of 50,000 downloads per day. The second time, which lasted around 10 days, caused them to lose an additional 20,000 downloads per day. They still haven't recovered that lost audience. They said, though the episodes are live again. So what do you think, Ben? Our white noise podcast being shadow banned by Spotify and should we have started Sharp Tech as just a white noise podcast. Have we been wasting our breath the last 12 months or so?

Well, but I have to ask, did Xi Jinping send in this question? Because he's like, look at all this wasteful sort of activity that's happening in your sort of free market system. I mean, look, the people want white noise podcast. You know, sorry, she. That's the way it works in a consumer or demand-based economy. No, it's a pretty funny story, and it speaks to the challenge of running a platform, right? When you create incentives,

people are going to figure out every possible hole that's sort of in that. Like, that's what's going to happen in sort of an open market, and Spotify is going to have to deal with it. And yeah, white noise is white noise. So Spotify's like, why can't we have our self-produce white noise?

Frankly, from my perspective, if I were Spotify, I would absolutely crack down on it, right? Like, like, salute you for figuring out this great gig, but, you know, it's our platform. We get to set the rules and you're out. We're going to capture that money for ourselves. Now, I'm sure they have bits about we want to be career friendly. We worry about reputation, all those sorts of things that, that, that, why they push back to it.

Oh, no, we're sort of not doing that. We are doing it, X, Y, Z. Welcome to the world of running a platform, right? This is just sort of what happens. I think it's a, it's sort of, it's kind of an amusing story. and there's not much else to say other than that. No, but it's also pretty interesting. It does highlight an aspect of the Spotify revenue model

that a few different people raised when we were discussing it earlier this summer as a potential model for Hollywood and the Hollywood strikes. Like when you're paid based on performance, you're putting yourself at the whims of not necessarily the audience, but the platform and what that platform chooses to emphasize. And this is an example where if you're a white, white noise podcaster who some of these white noise podcasters were doing pretty well. We'll put a link to the Ashley Carmen Bloomberg article in the show notes.

Yeah, Spotify things they can get back $38 million a year. That's a lot of money. They have their own incentives too. But it's just, it's interesting. And also Spotify has been pushing a lot more podcasts on its app. And we've gotten a few emails about that and saying, I can't even really find music on Spotify anymore because they're pushing podcasts so aggressively.

And it's, again, within Spotify's purview to do that, but it's going to be interesting to monitor the consequences of that behavior over the next couple years. Yeah, it's within customers per view to switch to Apple music or YouTube music. Okay, well, on a more specific note here, we'll close with Hocken. He says, after all the talk about Taylor Swift and the Swifties, I felt it was only natural for one of Ben's strategists to come out of the closet. No, stop it. This is terrible. Much like the Swifties with Taylor. I'm happy. for the opportunity to pay Ben at all for the Sartecre bundle.

And I've read slash listened to every post since I joined in January 2019. Never missed an episode of Dithrigg, Sharp Tech or Sharp China. Greatest of all talk is the only podcast that I've only listened to a handful of times. That's because I've never followed the NBA. Parentheses slowly getting into it now, though. Yeah, Adam Silver, cut us a check. Look over again for you. Absolutely.

Love it. Writing this, I'm feeling like a fan boy. but I guess it's not the worst thing to be gushing about. Anyway, Sharp Tech is easily my favorite podcast. So now, to add to the fanboy theme of this email, I'm in the process of emulating part of Ben's desk setup, chasing the staples of no overlapping windows and separate screens with designated places for apps,

as per monk bent.net and several references throughout the Stratecary bundle. The Holy Grail, however, is the non-vocal music podcast he listens to what is it? Don't get me wrong. I have a decent playlist on Spotify, but I was intrigued by it being quote, basically the same but different each time. Do you have any hints or is that a trade secret of sorts? No, no. It's the group therapy weekly show by Above and Beyond who is like, you know, DJs that were huge like 20 years ago and are still basically doing the exact same music, which is perfect, right? Actually, I was turned on to this by James Allworth, my my exponent sort of co-holed. And it's good because I can't handle music with lyrics because I will get distracted and start listening to the lyrics.

There's a bit, it's like sort of electronic, you know, dance music. And there's a bit where I hear it and it sort of like locks me into sort of it's sort of time to right now. So yeah, it worked for me. But, you know, I know other folks like, you know, Marco Arbent, he always talks about he listens to fish when he works, which I think is like the canonical example of the same thing but different every time. So, you know, I don't know, whatever, whatever works for you, white noise, maybe that's sort of, that's sort of the answer. I know a lot of people that can't listen to music at all. It has to be like, like total silence for them to work. But, yeah, that's what does it for me.

I ease into it with music for the first 30 minutes or so and then silence thereafter. But shout out to Hocken. That was a very kind email. What is your, what is your music of choice? It's pretty embarrassing. I go to YouTube and I have these like eight hours. Abiza club mixes that I listen to. It's similar to you. And I would never listen to that if I'm not actually working. I didn't like that music

growing up or anything. But for whatever reason, that became part of my workflow when I went into law. I don't actually know all the nomenclature on what it means. But there is a type of electronic music that is trance, which I think captures the idea generally, right? Like there's just a bit about

the motif that sort of like helps you sort of lock in, at least it does for me. Okay, well, Paul tweeted at us and said, can we have a member vote for TikTok versus screen time? Count me among those who think that screen time is a much better name. I agree. Unfortunately, Paul, we cannot have a member vote. Even Ben doesn't get a vote. This has been decided by Fiat.

And Ben, can I tell you why TikTok works? Sure, but it's going to take a lot of convincing. I like screen time. Screen time is better, and it's much cleaner. And if this were some giant corporation that focused grouped everything and optimized for efficiency at every level of the business, guess what? The name would be screen time. But Paul, do you know what the name of the website is? It's strategery.

Most people can't say it. Most people can't spell it. And look how successful Ben has been. So we are staying consistent here. We need more weird names in the world, more weird logos. designs. Everything has gotten too optimized lately. And TikTok is going to be the change I'd like to see in the world. And that is final. So with that, keep sending us emails. Email at sharp tech. Femm. Ben, do you have any final thoughts here before we close it out?

Hoisted on my own petard, as they say. There you go. All right. Well, we will be back next week. It will still be August when we return. So who knows what we'll get into, but we'll keep it rolling. And I look forward to more. Sounds good. I'll talk to you later.